2 Fabs Get the Final Approval in India

The long-awaited decision to set up semiconductor manufacturing facilities in India has been announced.

BANGALORE — It has finally happened. The long-awaited decision to set up semiconductor manufacturing facilities in India has been announced by the Minister for Communication and Information Technology, Kapil Sibal, on Friday, September 13. Sibal told EE Times:

Two consortia have proposed to build semiconductor wafer fabrication units in India. One of the consortia comprises International Business Machines, India's Jaiprakash Associates and Israel's Tower Jazz. The second comprises Hindustan Semiconductor Manufacturing Company (HSMC), STMicroelectronics and Silterra.

The investment in the first fabrication unit will be $4 billion while the second unit will have a total investment of around $3.9 billion, according to a Reuters report.

The whole point of setting these two fabs is to reduce imports (currently about 80 percent of the domestic requirement is met through imports). The move is seen as part of a plan to reduce dollar outflow at a time when the economy is battling a record current account deficit, which has also impacted the rupee.

Although there are many skeptics who feel that the fabs would go the way the earlier ones did, the government officials are quite positive about this development.

M.J. Zarabi, who headed the Empowered Committee responsible for the feasibility study for the setting up of a fab, told EE Times:

This is a decision that we have been keenly looking forward to. It is indeed a momentous decision that is expected to be a game changer as far as Indian electronics industry is concerned. I am sure all the electronics professionals are tremendously enthused by this decision.

Also for Ajay Kumar, the soft-spoken joint secretary of the Department of Electronics and Information Technology, who has always been championing the cause of a fab in India at almost every forum he speaks at, this is a culmination point for his espousal. He had always believed that if India had its own fab, then it would be easier to make a mark on the global hardware map.

He has been spearheading the "preferential market access" policy which states that whoever comes in to set up a fab would gain access to a large Indian/government market. Say, for instance, supplying chips for the Aadhaar card, a unique identification project set up by the Indian government to provide a 12-digit unique number to over 1 billion residents in India. Other areas of market access are in the changing of manual electricity/energy meters to smart cards, voting IDs for all the citizens, and driving licenses, all of which run into hundreds of millions cards.

At present, electronics imports are growing so fast that by 2020, they are projected to eclipse the oil import bill. India's semiconductor imports were $8.2 billion in 2012, according to Gartner. The demand is growing at around 20 percent a year, according to the Department of Electronics and Information Technology.

And, against this background, the setting up of a fab seems the only logical way out, though some would still argue that there is a lot more to the hardware story than just a fab or two. Getting India's infrastructure -- power, water, and roadways -- in good shape is more crucial than setting up manufacturing plant.

A design firm CEO who preferred to be anonymous told us:

If the government is not able to pull its act together and get the infrastructure moving in the right direction, there is no point in having the best of the chip manufacturing facilities here. How are we going to transport them with roads and logistics being a nightmare that they are today? Look at Bangalore or Mumbai today. When there are rains, the roads are a worse mess. Do you think you can transport chips on this crater-filled and potholed surface? Sure, you can but at what cost? Transport costs are going to shoot up -- as well as power costs and all this has to be kept at a competitive level as well.

Well. The die has been cast, so let's wait for a couple of decades for the real effect to come through. That's how long it has been for countries like China and Taiwan to be successful.

Nice article. It would be great to have a semiconductor fab in India, which would take around 5 years to solidify.

In the same lines, it's worthwhile to mention about a startup in India, establishing india's first nano semiconductor fab in Gandhinagar named De Core Nano Semiconductors Ltd. It houses crystal growth, processing, fabrication & material characterizing of Gallium Nitride wafers and manufacturing LED's and high power devices.

Cheers for your optimism...Jaypee group running a F1 is a whole lot different than building a fab... It will be quite a few years before anybody makes any kind of profit from a new fab.... The losses the first few years run into 100's of million dollars... Besides that cost of a 65nm fab alone ranges in about $2 - $3 billion dollars and any geometry further down like 40 & 22 etc.. will cost even more.....I am sure infra-structure is fine in a whole lot of areas and there is tremondrous growth in auto and other sectors. For a fab, besides the infra, you need the human capital... You have to have universities training folks in wafer fabrication etc today... Right now, none of that is happenning..... I wish it would happen... But I have my suspicions, that before the May 2014 elections, this government will announce a whole lot of pie in the sky projects.... Their track record has already shown that from before.....Lastly there are doubts about the Jaypee group....

There have been a lot of companies recently that have discovered what a bad idea it is to set up operations in India. The corruption and disregard for the law, will more than outweight any benefits. There are so many examples of foreign operators getting extorted by the government in India it is hard to believe they would do this.

Points well made - lets see how it goes. It would really be sad if this went the SemIndia way. Am sure the fabs were/are meant to ease the situation on imports.. many expert opinions would have been taken. Lets hope for the best

Great piece of history there by GSMD.... thanks. Was travelling, so missed out these past two days... but going through the interactions, apart from all the comments, one thing that struck me was the HVReddy's comment on Jaypee's real estate scenario. Everyone has a private agenda I guess but as long as it doesnt reallly mess up the overall/general "good" I think we should just go along with it. There is corruption in every stage and every step - big or small but if we can wade through it without getting deeply scarred, then things will work out.. I am pretty cynical at the way things work here in India but there are many optimistic guys out here who do try to work their way around huge obstacles.. lets just want and see how it goes

I agree - manufacturing won't be leaving China in volume any time soon. The stuff where what is made is a fungible commodity with enormous pressure on price, razor thin margins, and "lowest cost producer wins" might go elsewhere, assuming the new location can maintain acceptable levels of quality at high volumes.

But Chinese manufacturing is moving up the value chain, and lots of producers are in areas of the market where higher prices and better margins exist and higher labor costs aren't as significant. For instance, O'Reilly and Associates is doing a crowd-sourced Maker Map for Shenzen, for folks interested in working with Chinese suppliers on products: https://plus.google.com/107033731246200681024/posts/B9KByP86EmU

And there is still a healthy "Buy Chinese" sentiment in China, so foreign vendors have an uphill battle penetrating the Chinese market against local competition. (I'm not making any bets on how well Apple's new lower priced iPhones will do on cracking the Chinese market, and whether the Apple brand name will carry the hoped for cachet.

But China is at a turning point. With their cost advantage dropping, they can no longer count on growth from exports. They are no looking at internal growth, servicing the needs of the expanding Chinese middle class.

We'll see how they do. The government is riding the tiger, trying to maintain their tight control as their country and economy changes. That may not be possible.

I believe there are a couple manufacturing industry likely staying in China for a longer time - semi-conductor and high-end electronic manufacturing. Some others may just go elsewhere - labor intensive manufacturing. There are at least 2 reasons to support it.

1) Labor cost has been going up in China because of various reason, primarily rising cost of living.

2) Because of 1 child policy for last couple decades, China is actually an aging nation. Although it is still young compared to a lot of developed countries, the median age of China is definitely older than that of India.

@chanj0: Does it mean the manufacturing region is shifting from China to India? If it does, how fast will it go?

That depends on what kind of manufacturing you are talking about.

The manufacturing that moved to China was labor-intensive assembly line work, and it did so in search of lower costs.

China is in the process of boot-strapping from an agrarian third-world economy to an industrialized first world one. It's doing so the same way others did it: move the peasants off the farm to the cities, to become the basis of an industrial workforce.

China was able to achieve rapid growth as a manufacturing power because it could offer lower costs. Chinese factory workers got paid a fraction of what a comparable worker might get elsewhere, but everything is relative: it costs far less to live in China. For those peasants off the farm, the factory jobs were a step up. They had better hours, better working conditions, and paid better than being a peasant on the farm, and China found itself with infrastructure and urban development issues as peasants flocked to the cities to get those jobs.

But the pool of cheap labor is drying up, in part due to demographics and China's "One child per family" policy to reduce the population. Manufacturers are having to compete for workers, with wages increasing as a result, and China is no longer the low cost producer in that sort of manufacture. (There was a report in EETimes a while back about a major Chinese manufacturer who announced a full-scale push into robotics as a consequence.)

Vietnam is one place eyed as a possible new manufacturing center. The Philipines are another. India might well be a third, as the fundamental requirement is a pool of low cost labor for whom factory work will be an improvement over what they have. In fact, I can see Chinese manufacturers looking at outsourcing to India, funding and operating the plants. They already have the experience in dealing with corrupt and inefficient bureaucracies where the first requirement is knowing what palms to grease.

As you move up the value chain, things get more complicated. Semi-conductor fabs are highly sophisticated and capital intensive operations, and you have the question of whether the supporting infrastructure is there to support them once built. Is there transport to get raw materials in and goods out? Is there water? If there power? Is there sanitation? Is there a local work force who can operate the fab? Are there local suppliers who can provide what thee fab and its workforce need on a day to day basis? (Indian universities are certainly producing skilled engineers, but that doesn't mean any are where the fabs will be, or will want to relocate there.)

I look at India, and I see a number of formerly independant states that have become a patchwork quilt of a nation, and I sometimes wonder if all might not be better off if India dissolved into its component parts again. Certainly how well new enterprises do is strongly influenced by where they are. Some regions are simply better at supporting new development than others. If you could take the need to deal with the Indian national government and bureaucracy out of the equation, and developers could just deal with the regional authorities, all sorts of things might be possible.